Tesla is flailing in China and the rapid rise of BYD is to blame

BEIJING – It is almost unthinkable, but Tesla, the company that comes to mind when most people think about electric vehicles (EVs), may have had its best days in China, the world’s biggest and most advanced EV market.

Billionaire Elon Musk’s automaker has been backsliding in China for the past five consecutive months on a year-on-year basis, according to data from the country’s Passenger Car Association. Tesla’s shipments plunged 49 per cent in February from a year earlier to just 30,688 vehicles, the lowest monthly figure since July 2022, when it shipped just 28,217 EVs – and that was in the middle of the Covid-19 pandemic.

Tesla’s factory on the outskirts of Shanghai has had some of its production lines retooled for efficiency and to relaunch the popular Model Y, so it is to be expected that output dropped and will take some time to ramp back up. But even before that, the trend was heading in the wrong direction.

In terms of market share of the top 12 automakers in China by sales for any type of car – electric, hybrid or otherwise – Tesla is at No. 11 with well under 5 per cent.

Then there is BYD. The company, which stopped making cars powered entirely by internal combustion engines in March 2022, has a market share heading towards 15 per cent. It sold more than 318,000 fully electric and hybrid passenger vehicles in February, a rise of 161 per cent year on year. BYD also notched another record month for overseas sales, which hit 67,025 units.

Its success is a major reason why Tesla is losing.

While Tesla sales in other parts of the world are cratering as Mr Musk wades deeper into politics many find unsavoury – sales in Germany plunged 76 per cent to only 1,429 cars in February, even as overall EV registrations jumped – in China, disappointing shipments have more to do with a narrow and dated line-up, particularly in the face of up-to-date and more exciting offerings from BYD and others.

Year-end data places Tesla’s share of China sales at 2.6 per cent, the lowest in 12 months, according to figures compiled by the China Automotive Technology and Research Centre.

Another chart shows how BYD has muscled into Tesla’s sweet spot.

The Model Y and Model 3, the two vehicles Tesla makes in Shanghai, have only had their prices trimmed, rather than slashed, and buying one still costs about US$33,500 (S$44,600) on average. 

BYD’s best-selling model in 2025 in China, a sporty hatchback called the Song Plus, has had its sticker price reduced by between 8 per cent and 18 per cent, depending on the car’s specifications. The most expensive Song Plus EV retails for around US$21,000 – much cheaper than a Tesla.

Another of BYD’s popular models, the Seagull, which has found around 82,435 buyers in 2025, comes in at an even more affordable US$9,900, on average.

Chinese carmakers have also significantly upped their game when it comes to localised software tailored to domestic driving conditions.

BYD said earlier in 2025 that it is taking advanced driver-assistance to the masses by including its God’s Eye technology in even some of its cheapest cars. Now, features like lane-keeping and adaptive cruise control will be for everyone, and not only for people who can afford mid- to high-end models.

Geely Automobile Holdings, China’s fourth-ranked carmaker by market share, said last week that its artificial intelligence-powered pilot system will be added to all of its brands, including Galaxy, Zeekr and Lynk. The G-Pilot technology will enable cars to navigate highways and self-park.

Tesla is not standing still. Apart from its highly anticipated Model Y refresh – the sport utility vehicle now features a thin LED light running across its front end, reminiscent of the Cybertruck – Tesla in February enabled driver-assistance capabilities in China similar to those marketed as Full Self-Driving, or FSD, in the US. The software will be switched on for customers who have paid 64,000 yuan (S$11,800). Then again, that is almost as much as what it would cost to buy an entire BYD car.

For Tesla, a recalibration of its pricing strategies, both for its driver-assistance functions and the vehicles themselves, is paramount.

Offering tiered FSD packages, or a subscription option like what Tesla has in the US, could broaden the appeal of its EVs. Chinese consumers place a lot of importance on intelligent software features in cars. That is something Tesla could capitalise on as Mr Musk’s pulling power wanes among some consumers.

Tesla could also look to integrate more locally sourced components and leverage China’s robust supply chain so that it is not only building cars powered by electricity, but also by technology.

BYD understands those domestic market dynamics well. The key for the company will be whether it can replicate its success in big car markets outside of China, even in the face of tariffs. It will take time and substantial investment to establish its brand abroad. BLOOMBERG